Why wireless will end ‘piracy’ and doom DRM and TCPA – Jim Griffin

Flat fee pricing an escape route for RIAA, MPAA

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Don't worry about DRM and lock-down computing, says Jim Griffin. Historically they're doomed to fail. The former director of Geffen's technology group believes that wireless networks such as 3G, 4G and WiFi will provide the tipping point at which the entertainment industries come to the table to cut a deal - before political pressure forces a deal upon them.

The deal will involve one of the flat-fee models, such as 2002's Blur/Banff proposals [PDF, 473kb] or the model Harvard's Professor Fisher summarized here. Both of these envisage a pot of compensation money and a mechanism for divvying it up, permitting the free exchange of artistic goods. And with 'piracy' abolished, there's no need for DRM.

At a time when 12-year old girls are being arrested for harboring an MP3 file of their favorite TV show's theme tune, and the RIAA dons paramilitary outfits to terrorize street vendors, this seems to be an unfashionably optimistic view. But as Griffin explained in a lengthy interview with us, flat fee pricing will eventually prevail, forcing the industry to the table. Why? Because the pigopolists will realize that they'll make more money out of a flat fee model than by trying to force the world - particularly developing countries - to buy expensive content under lock and key.

He shuns the word 'tax'; partly because he believes that such a model won't penalize anyone who doesn't participate, and also because Griffin wants to minimize the role of Government, relegating it to the role it plays in business of Antitrust watchdog.

But Griffin's optimism is founded on the belief that where the marginal cost is zero consumers have historically opted for bundles rather than onerous one at a time pricing.

"Can you think of a single model where we haven't had a pool of money then split it up?" he asks. "Since the 1920s we've had public address systems, radio, TV, and cable - and all of those are monetized with a pool. You simply can't find an example to the contrary."

By promising to play nice, and building DRM and TCPA technologies, the computer industry is simply making come-hither noises that the rights holders want to hear.

"When I was 14, I told girls I loved them to sleep with them too. It was a fiction. Steve Jobs just leaves a little money on the table," he says. "These theoretical notions of control run headlong into the real historical experience."

High bandwidth wireless networks will tip the balance, thinks Griffin, because not only do they allow people to build new peer-to-peer networks to distribute content and exasperate the RIAA - an unstoppable trend, he believes - but because they offer the rights holders the chance to make more money.

So much for the executive summary. Now for the detail, with Jim in bold.

- What's your starting point for the flat fee model?

We have to start with the a priori notion that we must democratize access to art and knowledge. That's a baseline notion of a civilized society. We have libraries that will get you any movie, and any song, and any book; and price or money should not stop you hearing those songs. Museums go even further, with the idea that great art should be able to travel, to come to you, and feel free.

For anyone who doesn't start with that notion, you have to ask who they're working for.

- But don't we have the problem of a new fee, which may cost most people less, but which will still be regarded as a new fee?

Society is afraid of new taxes and rightfully so. I really object to even the partial notion that art or any other human creativity should be priced by a government commission; when we do, we slide so quickly into a place that is a huge mistake. But we don't have to go there.

You just have to look how we dealt with similar circumstances in history. Now go back to the 1920s, which was a time of much greater change than now. The move from acoustic to electric was much more savage than electric becoming digital.

Before then, artists were accustomed to controlling their output completely, with their feet. Then artists lost control. After loudspeakers came broadcasting, and the audience could see or hear you across the ocean, even without your permission. That had no real precedent.

So ASCAP and BMI came along with a model that embraced performance, and this continues to grow, while sound revenue continues to fall. It's a model that has survived the times and grown, while the sound recording model has really only existed for a blip in history. Now we're re-living what happened in the 1920s: it's just a matter of gradations stronger, but it's not revolutionary.

Locks and keys are probably the one thing people find more antithetical than having the Government involved. But we do need people to make money.

- You're so certain that DRM will not succeed, but the temptations for the industry are so great - one-time party CDs - that surely it's too tempting for them not to try?

Theoretically what you're saying makes some seductive logic. But it's obvious that not only should it not happen, it's not going to happen.

The flow of information once digitized, this anarchy of art and knowledge and creativity, can't be controlled. We've designed our societies around the anarchy. For example, we've been emphatic about the notion that we can't control speech. We may send out the secret police and have all manner of efforts of control; but basically we don't believe in it.

So we're left with two paths here. Will we try and end the anarchy of art, or will we try and monetize it? Art and knowledge and creativity are fascinating to us because they make our lives better when they're not controlled. And we've monetized it successfully throughout history.

- For example?

Broadcasting started out as a pirate technology. But as rights holders we'd rather not have bar owners and radio stations ringing us up and asking us for permission each time they wanted to play a song, because it would cost us more to answer than phone than it would gain us in revenue. So the US broadcast industry went to rights holders and created this bundled price with bundled choice, a sort of 'theme park admission fee' for content that allowed that cable operator, or satellite operator, or radio station, or bar to use the content without seeking permission.

That monetization is simplicity itself. You have a pool of money and a way to split it up.

Actuarial analysis is getting quite sophisticated now, and can overcome these disconnects. Let me give you an example.

The model really goes back to the 1600s and 1700s and the idea that there were things we couldn't control, like death!

Let's picture a London coffee shop back then. There was a potential for an active market for selling rum to the New World, that had been shut out because the King had picked one or two suppliers. These other rum suppliers are talking about how to get it there. But it's risky - the ship might sink. At the next table a group of bankers overhears this conversation and says, 'here's a pot of money that insures the ship'. That group of bankers becomes Lloyds of London.

Now if you fast forward to modern times you can find a situation far more adversarial than copyright. Automobiles kill a million people every worldwide, but we allow them to proceed with a safety system that's five feet wide and just a white line.

So we create risk, but that actuarial system will tolerate death. Now if that model works for transportation, it can work for copyright. The risks are quite small - no one is dying because of copyright infringement. We have models that let us get over the hump of technological change.

We can make cars faster than we can stop them. But we do not require that cars be controlled, we only require we monetize them.

So the very same people who resist this for sound recordings are embracing it for performance. When the record company wants to pay the songwriter, they use a fee set by the government [the US Library of Congress Copyright Office]. Why? It's purely to preserve for a few more years this resistance against the onslaught.

- So why can't the rights holders see this coming?

The war is over. I call it Tarzan economics. They think they have to cling to a vine of revenue because it's the vine they're used to, and if they let go they fall to the jungle floor. You very quickly grab the next vine, but until it's there for you, you cling to the one you've got. It's a question of timing - when that vine will appear. We live in a time of transition.

They need to make the fundamental realization that control is not going to come to their rescue. We in the arts like to believe in the deus ex machina - this machine that in the third act of the opera that comes down and rescues the heroine from the flames. But there is no deus ex machina.

Lawyers and technologists continue to sell this snake oil of control, whether it's from the court and the police [RIAA legal jihad], or whether it's coming from technology [DRM]. Bill Gates for one has worked hard to convince people that the fat lady is going to be rescued by the machine. Once you reach the realization that it isn't going to solve our problems, then you begin to embrace the alternatives.

The publishing people know this, and they're quick to realize this. They were quick to recognize Napster. So we're left with a group of sound recording owners that's looking for a few more years of this resistance against the onslaught. But the war is over.

- But we keep reading how iTunes Music Store is the 'sensible' third-way

That depends on who you're reading!

- Surely it's true that the computer industry - Apple and Microsoft are encouraging them in the belief that DRM or TCPA will protect them?

No. iTunes itself I would not call a successful model. It's a model for selling iPods. Very few songs are being sold, and there's just one price of 99 cents. Its lack of interoperability is almost a statement against DRM itself. I would call iTunes the sort of leaky bucket we've always been used to; remember that iTunes ships with its own circumvention.

It costs $20,000 to fill an iPod from iTunes Music Store. Quite simply, no one looks at a 40 GB iPod and thinks, "it will cost me $20,000 to fill it". It's a polite fiction. It's a looking the other way. We pretend there's monetization, but there isn't.

Look where the money goes. It's a good model for credit card companies but a bad one for artists.

- Well, Apple did remove the claim that iTunes Music Store was 'good for artists'

I like the idea of payment, we both do: create a pool of money and split it up. But I don't think the government should set it and nor should there be one price set by Steve Jobs.

One disconnect the iTunes model has with reality is that what works for IP is a bundled price, and what doesn't work is granularity, historically. Do you think Edgar Allan Poe could have made money if he sold The Raven separately from 30 other poems?

Newspapers have always known that if they sold the sports section separately, they could finance the rest of the paper. We know when we get cable TV that we have to buy the channels we don't want to get the ones we do. Not many cellphones are sold now without a bundled price. We've seen that transition in ways. For intellectual property we almost always thrive better with bundles.

99 cents is both too high a price and too low. It's too low to pay for the burden of a developing artist, and it's too high to fill an iPod. What the sweet spot is, is the recognition of the low or non-existent cost of delivering digits.

But even more that that, I would point to the positive economic consequence of using art. There are negative consequences. Let me give you an example. If there's a band called 'Andrew and the All-Stars' and you go out to a concert and buy a CD, then that's a $10 to $20 tax on your adventurousness. But if you pay the flat fee for your content then listening to 'Andrew and the All-Stars' is a positive decision. You're getting more for the money you've already paid.

Now consider there's a pool of compensation money for music. The new incentive is the same as the old one, to get people to listen to it. The more it moves the more money I get. That's how radio works. Artists get paid more the more people listen.

We in the arts business are in the position of a librarian that quietens 14-year olds by pointing a finger at them and shushing them. But we aren't very good at shushing them. It’s not what we do well; we haven't done well hiring those people.

- What is the fate of retail, of the record stores, when music is free at the point of delivery?

They'll do well. Music throughout history has been a way to draw a crowd, and we use the crowd to sell them other things. Music in stores is a way to sell a microwave oven. There has never been much margin in selling music - Tower went bankrupt this week and we'll see other retailers go bankrupt too - but if you can attract a crowd you can sell high margin items around the music.

This is where the arrival of high-bandwidth wireless is so important. Well, I've done some figures.

The most people spent on music before digital delivery, before the anarchy that for the RIAA represents hell, the high point, was $4.02 per capita per month. That figure was exaggerated because it represents all the records shipped, not sold; and it represents them by their retail not selling price.

But let's say we need to replace ten per cent of that. You can a spread a fee of forty cents around, and scale the amount of payment up. A form of negotiation, not a tax, can produce an appropriate amount of money over time.

With copyright owners it's difficult to monetize things after the fact. In wireless, we live in 1992, at 14.4 kbits/s, which is shortly before the troubles began! With the wired Internet we convinced people to move from 14.4 kbits/s to 384 kbits/s and faster; now we have to convince them to pay for it and build a market around it. The 3G networks are going in and they're wondering how to get people to use them, because if they don't use them for data, people can use 2G networks for voice. But before high bandwidth wireless takes off we still have the opportunity to do this for copyright holders, before the fact.

But how can the wireless industry get there? Only this week we saw a DRM standard for cellular announced?

When I was 14, I told girls I loved them to sleep with them too. It was a fiction. Steve Jobs just leaves a little money on the table.

We see Jobs and Gates making promises to the content industry that they have no intention of keeping. It's the promise you make to move forward. The content owner wants to hear it.

If we're honest we'd say to the content owners, "we're not going to succeed from what we can tell. The cars we build are more powerful than the brakes we build, and we won't control it. The ways to make it friction-free are more powerful than the friction we build. The audience sees no value in friction. They don't pay for it."

But we don't say it. We'll say what we need to say to get it.

Is the BBC a good analogy? We have our license fee in the UK. And people always grumble but that's about all.

Yes, people will sort of grumble. Or [not] pay the license fee and wait for the guy to knock at the door. And we get extraordinary high quality programming without the commercialization, and it's a fair trade-off.

The alternative is to sell people a package under lock and key. Do you think we will build rational markets in India or China or the Russian Republics based on locked disks priced at $20? On the other hand we can go to each economy and negotiate a pool and a way of splitting it up.

- But Europeans have a longer history of socializing these costs

No, this is not socialization. We reward more popular artists with more checks. I don't think we'll be successful by advocating art priced by government. We'll be more successful by negotiation. Putting the levy on equipment is an enormous mistake. Levying disk devices just proves that government doesn't do pricing well.

But we're very good at making things feel free that aren't free. People will insist to me that radio is free, or Internet is free, or cable TV is free. You pay for advertising every time you pay for something - it's bundled in the price. Newspapers and magazines sell for less than the marginal cost of delivery. Google feels free to everyone, but we know we're paying more for Google upfront by visiting each advertiser's website.

Government has an after the fact role, as it does with Antitrust legislation. The arguments should be voluntary. And this happens in Cable TV.

- I'm not convinced you can get the RIAA to come to the table voluntarily

The bottom line is politicians will not deny their constituents their mind candy. Mind candy is a narcotic for the masses; there's a role for government and, yes, it will be involved.

If you recall the DirectTV versus the networks dispute, DirectTV carried PBS, FOX, ABC and NBC on their satellite without their permission, and got sued. And lost every step of the way. But they wouldn't take them off the satellites. IT was about to be decided by the Court when Congress intervened and said they don't need to pay, and gave them a compulsory license. When a million people wrote to their Congressman and said "Help, I love my satellite!", Congress sat down and said "we'll make them give it to you". So I have a distaste for that, and voluntary is the most expedient course of action. But fundamentally politicians will - it's the classic case for involvement.

If you resist too long, you'll be a sinner in the hands of an angry people who'll take it for a price you don't agree to. "Hey! You've made a couple of Tarzan passes too many … "

- You don't think objections to gaming the system should cause concerns?

Actuarial analysis takes care of a lot of things. People cheat by not having car insurance. Does that mean we shut down the automobile industry? No, we work out the risk.

Most people are astonished how cheap flat fee access could be. Barely more than an iPod song a week for broadband users. And suddenly it transforms culture, and civic spaces

The war is over. The public has won. The only question left is how we ought to be paying for it.

iTunes and Napster 2 will go to flat fee systems. Steve Jobs has already said every dime you pay goes to the RIAA. He just wants to sell iPods. Let's say the average person spent $4 a month, which I'd say is very high. And if you charged $10 month, you'd make your money.

People feel it in their belly, this zero marginal cost. If you look at the pricing of goods you can't control, price equalizes at marginal cost. Can you think of a single model for uncontrolled goods where we haven't had a pool of money then split it up?

We'll give a 41-year old pub-owner a license to pay music for people drinking liquor, and he'll never have to negotiate for a song again. We deny that license to a 14 year old. You simply can't find an example to the contrary.